Congress

GOP senators uneasy with Fed pick on gold, deposit insurance

Questioning a return to the gold standard and eliminating federal deposit insurance

“I'm not convinced we should switch to a gold standard anytime soon,” said Sen. Patrick J. Toomey, R-Pa., (File photo by Bill Clark/CQ Roll Call)

Republican senators have expressed concerns about Judy Shelton, one of President Donald Trump’s picks for the Federal Reserve Board, over her support for a return to the gold standard and eliminating federal deposit insurance, but, so far, are holding back from publicly opposing her nomination.

Trump tweeted his intention in early July to nominate Shelton and Christopher Waller to the two vacant seats on the seven-member Fed board. Waller, an economist at the Federal Reserve Bank of St. Louis, is seen by most observers as a conventional pick, but Shelton’s decades-long advocacy for resurrecting the Bretton Woods monetary system has put her at odds with most economists and some Republican senators. The system pegged the dollar to the price of gold and other currencies to the dollar.

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“I'm not convinced we should switch to a gold standard anytime soon,” said Sen. Patrick J. Toomey, R-Pa., who sits on the Senate Banking Committee.

Toomey added that he hasn’t spoken with Shelton yet and therefore hasn’t made up his mind about whether to support her.

Sen. Kevin Cramer, R-N.D., also said he disagreed with Shelton on the gold standard, but added that having someone with that perspective wasn’t necessarily a bad thing.

“I think it’s healthy to be skeptical of the role of currency manipulation, even if you're about to become a manipulator,” said Cramer, who also sits on the Banking Committee. “I don’t think I'd want seven of them — I probably wouldn't want three of them — but I think having one would be very good. In fact, I find it quite good.”

He also spoke favorably of Shelton’s views on bank regulations. “I think she brings a certain interesting perspective. I think her reluctance as a regulator is noble.”

Cramer played a prominent role in sinking Trump’s previous two Fed picks, Herman Cain and Stephen Moore, publicly opposing the former and privately urging his GOP colleagues to speak out against the latter.

Cain and Moore shared Shelton’s support for a gold standard, which economists say would limit the Fed’s ability to respond to changes in the economy, but both candidates were undone by issues with women. Cain was accused of sexual harassment and Moore wrote derogatory articles about women. Shelton has their monetary views — including echoes of Trump’s criticism of Fed Chairman Jerome Powell — without that political baggage.

Shelton hasn’t been formally nominated and, for confirmation, would be considered first by the Banking Committee, which has 13 Republicans and 12 Democrats. If she makes it to the floor, and Democrats uniformly oppose her, she could only afford to lose four Republican votes.

Shelton was confirmed by the Senate as director of the European Bank for Reconstruction and Development on a voice vote in March 2018. She resigned that post last week.

Shelton’s views on the Federal Deposit Insurance Corporation have also drawn criticism. In her 1994 book, “Money Meltdown,” Shelton advocated for ending federal deposit insurance, which most economists credit with restoring faith in the banking system following the Great Depression. Shelton called it a government subsidy that distorted financial markets. “Depositors no longer have to make judgments about the competence of bank management or the characteristics of the loan portfolio,” she wrote.

That view didn’t sit well with Sen. Mitt Romney, R-Utah, who also publicly opposed Cain’s nomination but said he was still undecided on Shelton.

“I believe that deposit insurance is absolutely critical to a stable banking system, so there are some places where I may have some disagreement with her writings,” he said. “I look forward to hearing what she has to say about that, as well as her views on a gold standard based currency.”

“It doesn't mean that everybody has to agree with me to become a member of the Fed,” Romney added. “But I'd like to hear her perspective.”

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